Write a paper in which you: 1) Determine the regulatory oversight that was in place while the
Question:
Write a paper in which you:
1) Determine the regulatory oversight that was in place while the Ponzi scheme was operating, and speculate on the main reasons why they did not discover the scheme.
2) Assume you are an auditor for a firm that had $10 million dollars invested in Madoff Securities.
3) Determine the fundamental audit procedures that you should have applied to this investment.
4) Predict the way in which a peer review of Friehling and Horowitz would have uncovered the scheme related to Madoff Securities.
5) Pretend you are Harry Markopolos and suggest one (1) strategy, different from that of the case study, to expose the potential fraud. Provide a rationale to support the suggestion.
6) Analyze the role of the audit committee for Madoff Securities in regard to the discovery of Ponzi scheme, and suggest one (1) action the audit committee could have taken in order to prevent or detect the fraud. Provide a rationale to support the suggestion.
THE CASE STUDY FOR THIS PAPER!
CASE 3.1 Madoff Securities Bernie wanled to be rich; he dedicated his life to it. John Maccabee, longtime friend of Bernie Madoff Bernard Lawrence Madoff was borm on April 29, 1938, in New York City. Madoff spent his childhood in a lower imiddle-class neighborhood in the Borough of Queens. After graduating from high school, Madoff enrolled in the University of Alabama but trans- ferred to Hofstra College on Long Island, now known as Hofstra University, at the beginning of litical science degree from Hofstra. According to a longtime friend, the driving force in Madoff's life since childhood was to become wealthy. "Bernie wanted to be rich; he dedicated his life to it." That compelling force no doubt accounted for Madolf's lifelong lascination with the stock market, As a teenager, Madoff frequently visited Wall Street and dreamed of becoming a "major player" in the world of high finance. Because he did not have the educational training or personal connections to land a prime job on Wall Street after he; from college, Madoff decided that he would set up his own one-man brokerage firn: While in college Madoff had accumulated a $5,000 systems during the summer months for wealthy New Yorkers living in the city's afllu- ent suburbs. In the summer of 1960, Madoff used those funds to establish Bernard L. Madoff Investment Securities LLC, which was typically referred to as Madoff Securi- ties. Madoff operated the new business from office space that was provided to him by his father-in-law, who was a partner in a small accounting firm, For nearly five de- cades, Madofi served as the senior executive of Madoff Securities. During that time, the shy New Yorker who had an occasional stammer and several nervous tics would accumulate a fortune estimated at more than one billion dollars. f his sophomore year. Three years later in 1960, he graduated with a po- oistra mend, graduated by installing sprinkler nest egg Taking on Wall Street Madoff's brokerage firm initially traded only securities of small over-the-counter com- panies, securities commonly referred to as "penny stocks." At the time, the securi- lies of most large companies were traded on the New York Stock Exchange (NYSE). The rules of that exchange made it extremely dilficult for small brokerage firms such as Madoff's to compete with the cartel of large brokerage firms that effectively con- trolled Wall Strcet. Madoff and many other small brokers insisted that the NYSE's rules were anlicompetitive and inconsistent with a free market cconomy. Madolf was also convinced that the major brokerage firms kept securities transaction costs arti- ficially high to produce windfall profits for themselves to the detriment of investors, particularly small investors. Because of Madoff's resentment of the major Wall Street brokerage firmms, he made i his mission to "democratize" the securities markets in the United States while at the same time reducing the transaction costs of trading securitics. "Bernie was the king of democratization. He was messianic about this. He pushed io aulomate the (securities trading] system, listing buyers and sellers on a computer that anyone could access. 1. J. Maccabee, "Mom and Dad and Ruth and Bernie," Nee York Magazine 2. S. Fishman, "The Monster Merisch New York Magizine (nymag corH), 22 February 9. mag.com), 22 Felnuary 200 125 CASE 3.1 Madoff Securities Bernie wanled to be rich; he dedicated his life to it. John Maccabee, longtime friend of Bernie Madoff Bernard Lawrence Madoff was borm on April 29, 1938, in New York City. Madoff spent his childhood in a lower imiddle-class neighborhood in the Borough of Queens. After graduating from high school, Madoff enrolled in the University of Alabama but trans- ferred to Hofstra College on Long Island, now known as Hofstra University, at the beginning of litical science degree from Hofstra. According to a longtime friend, the driving force in Madoff's life since childhood was to become wealthy. "Bernie wanted to be rich; he dedicated his life to it." That compelling force no doubt accounted for Madolf's lifelong lascination with the stock market, As a teenager, Madoff frequently visited Wall Street and dreamed of becoming a "major player" in the world of high finance. Because he did not have the educational training or personal connections to land a prime job on Wall Street after he; from college, Madoff decided that he would set up his own one-man brokerage firn: While in college Madoff had accumulated a $5,000 systems during the summer months for wealthy New Yorkers living in the city's afllu- ent suburbs. In the summer of 1960, Madoff used those funds to establish Bernard L. Madoff Investment Securities LLC, which was typically referred to as Madoff Securi- ties. Madoff operated the new business from office space that was provided to him by his father-in-law, who was a partner in a small accounting firm, For nearly five de- cades, Madofi served as the senior executive of Madoff Securities. During that time, the shy New Yorker who had an occasional stammer and several nervous tics would accumulate a fortune estimated at more than one billion dollars. f his sophomore year. Three years later in 1960, he graduated with a po- oistra mend, graduated by installing sprinkler nest egg Taking on Wall Street Madoff's brokerage firm initially traded only securities of small over-the-counter com- panies, securities commonly referred to as "penny stocks." At the time, the securi- lies of most large companies were traded on the New York Stock Exchange (NYSE). The rules of that exchange made it extremely dilficult for small brokerage firms such as Madoff's to compete with the cartel of large brokerage firms that effectively con- trolled Wall Strcet. Madoff and many other small brokers insisted that the NYSE's rules were anlicompetitive and inconsistent with a free market cconomy. Madolf was also convinced that the major brokerage firms kept securities transaction costs arti- ficially high to produce windfall profits for themselves to the detriment of investors, particularly small investors. Because of Madoff's resentment of the major Wall Street brokerage firmms, he made i his mission to "democratize" the securities markets in the United States while at the same time reducing the transaction costs of trading securitics. "Bernie was the king of democratization. He was messianic about this. He pushed io aulomate the (securities trading] system, listing buyers and sellers on a computer that anyone could access. 1. J. Maccabee, "Mom and Dad and Ruth and Bernie," Nee York Magazine 2. S. Fishman, "The Monster Merisch New York Magizine (nymag corH), 22 February 9. mag.com), 22 Felnuary 200 125
Expert Answer:
1 The Ponzi scheme was a fraudulent investment operation that ran from 1992 to 2008 in which Bernard Madoff promised investors inflated returns on the... View the full answer
Forensic Accounting and Fraud Examination
ISBN: 978-0078136665
2nd edition
Authors: William Hopwood, george young, Jay Leiner
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